ET's long-standing columnist Ruchir Sharma's book, Breakout Nations: In Pursuit of the Next Economic Miracles, departs from the conventional wisdom on which economies would register sustained growth, analysing a wealth of data and research from across the world on what makes economic growth soar and/or sputter

How relevant is the experience of the 1970s and the 1980s, leave alone of the 1960s, for assessing the development potential of nations in the current era? Trillions of dollars of footloose capital looking for profitable deployment, the internet and cheap shipping were absent before the late 1990s.

While it is true that recent technological changes led by the internet are a powerful force for boosting economic growth, the world has consistently seen such great advances in technology from the light bulb to the printing press to the steam engine.

All such breakthroughs are often accompanied by a 'recency bias' - a cognitive bias whereby one weights recent events more than earlier events. It is easy to understand how useful recent technology is, but it is harder to internalise how different life would be without things such as the wheel, aeroplane or antibiotics, to name a few.

Regarding the 'wallof-money argument', what is apparent now is that while central banks can print all the money they want, they can't dictate where it goes.

This time around, much of that money has flown into speculative oil futures, luxury real estate in major financial capitals and other non-productive investments, which last year led to an inflation problem in the emerging world and continues to undermine the purchasing power of consumers across the globe. As speculation drives up oil prices, consumers now spend a record amount of their income on energy needs.

From an investor's point of view, identifying fast-growing companies is important, not knowing which economy grows fast. And the fastest-growing companies could well be in the slow-growing developed countries.

While there are instances where a fastgrowing company could well be in a slowgrowing economy - as exemplified by Mexico and South Africa - and also when a fastgrowing country does necessarily result in strong stock market gains - as has been the case with China - in most emerging markets, we have seen a strong relationship between economic growth and stock market returns.

So, getting a country's economic growth rate right is particularly important for the investment equation. Of course, what matters is expectations as well. In 2011, a growth rate of 7% was enough to trigger a bear market in Indian stocks as the prices in the Mumbai stock market were based on what Indian companies would be worth down the road if the economy continued to grow at a sustained pace of at least 8%.

What should the government of India do, in order to not squander the 50% chance you think it has to become a breakout nation?

The premature creation of a welfare state, falling turnover among the rich and powerful and a disturbing tendency of farmers to stay on the farm are some of the key issues that need to be addressed for India to become a breakout nation.

It was easy enough for India to increase spending in the midst of the global boom, but the spending continued to rise in the post-crisis period. If the government continues down this path, India may see the same fate as Brazil in the late 1970s when excessive government spending led too persistent inflation and crowding out of private investment.

Is democracy or an authoritarian political system more conducive for an economy to be a breakout nation?

It's not the type of system that matters, it is the stability of the system and, even more important, whether the leaders running it understand the basics of economic reform. The chance that any particular system - democratic, authoritarian or any other - will have a positive impact on a country's breakout potential is about 50-50.

Our research found that in the 1980s, 32 nations were growing at a rate faster than 5%, and 59% of them were democracies; in the 1990s, 59% of the 39 high-growth nations were democracies; and in the 2000s, 43% of 53 were democracies. The total for the three decades: 64 (52%) of 124 high-growth countries were democracies.